By Jo Kelly, Strategic Advisor, B Lab Australia and New Zealand
B Lab has long advocated globally for models that promote alignment with business stakeholders, advancing an ethics of stakeholder governance to replace the doctrine of shareholder primacy. In view of the changes underway in corporate governance practices in New Zealand, B Lab now advocates for New Zealand companies to codify and lock in the mission or objective in governance and management decisions, using the constitution of the company to include the public interest objective and the governance arrangements of the stakeholders.
What is a business for in 2021?
Although shareholder priority is not an express legal requirement of the New Zealand Companies Act 1993, the idea of ââshareholder primacy is prevalent in traditional New Zealand business culture and practice.
However, business expectations of consumers and regulators are changing, with an emphasis on governance for communities, workers and the environment. The Impact Initiative – a social enterprise sector development partnership between the Äkina Foundation and the Department of Internal Affairs – explored the evolution of corporate legal structures. Initially, this work advocated for minor amendments to the 1993 Companies Act.
However, in recent years, the New Zealand corporate governance environment has evolved enough that the Impact Initiative, in line with B Lab’s position, is now advocating for New Zealand companies to codify and lock in the mission or objective in governance and management decisions, for example by amending their constitutions to include an objective and require stakeholder governance.
This is just one example of a philosophy that fuels the global movement known as Certified B Corporations.
The B Corps are a global movement of people using business as a force for good
Originally designed in the United States, where the price of one stock can profit at the expense of everything else, the B stands for “profit.” Profit corporations represent the idea that a business should be legally able to exist in order to create benefits for stakeholders other than shareholders.
B (B Corps) certified companies are companies that balance purpose and profit and hold themselves publicly accountable for the impact of their decisions on their workers, customers, suppliers, the community and the environment. A company can âcertifyâ when it demonstrates that it meets a rigorous set of governance and management requirements, which are administered by the nonprofit B Lab.
Today there are nearly 4,000 B Corps in over 70 countries including North America, UK, Europe, China, Australia, Latin America and New Zealand.
B Lab connects New Zealand businesses with the learnings and tools of the global B Corp movement.
In partnership with initiatives led by businesses, governments and philanthropists, B Lab supports collective action to create the systemic conditions that enable better business at all levels, for example through public policy, advocacy and listing rules regulated by stock exchanges.
Gaining ground in New Zealand
New Zealand’s legislative system supports B Lab’s model of governing by goals and stakeholders. By adopting the language of their company’s founding documents, B Corps demonstrates that they hold a higher level of responsibility for their decisions. From mid-2021, this new requirement will be a key part of B Lab’s certification requirements.
However, this is not just a B Corp solution: all New Zealand companies can legally commit to the pursuit of profit and purpose.
âAll New Zealand businesses can legally commit to pursue their purpose and profit. Â»Jo Kelly, B Lab Australia and New Zealand
As is the case in other regions, it is not uncommon to hear directors in New Zealand say that they are considering the impact of company decisions on stakeholders, but there is plenty of advice. administrators do not yet know how to integrate processes to do so effectively.
The amending constitution intentionally holds a business accountable for creating profits and making a positive impact. This is a clear commitment to shareholders on how the business will be run and how the directors intend to discharge their responsibilities. It also opens the conversation at the board level on how to integrate consideration of the purpose and stakeholder interests into corporate governance.
This approach is also designed to help companies protect their mission through capital increases and leadership changes, and aligns investors (and potential investors), directors, founders and management. Certified B Corp, Eagle Protect is an example of a New Zealand company whose mission is “locked” in its constitution. Many countries around the world, including nearly 40 states in the United States, have similar models legislated to support stakeholder governance practices. “
Where to start with stakeholder governance?
Changing the constitution is an important aspect of the commitment to meaningful stakeholder governance. Companies can manage risk by implementing appropriate governance procedures to promote a higher level of decision-making among directors. For example:
- The board actively positions itself to hold management accountable for pursuing its goal of having impact, in addition to profit
- The board institutes a policy that requires that questions brought to the board describe the consequences on the business purpose to have an impact and how stakeholders have been considered in decision making
- The board ensures that the discussions of the board and its sub-committees consider issues relevant to its purpose and stakeholders, and that these discussions are recorded
- The board has adequate induction material and training for new directors on its constitutional purpose and commitment to include stakeholders
- The board charter clearly sets out the goals and stakeholder considerations that directors must take into account when making decisions.
For more ideas and tools to improve stakeholder governance, start with Impact Assessment B today or visit bcorporation.co.nz